Boomerang Inc.

Step$-$by$-$Step Practice in Cash flow development

$1.$ Basic problem. Boomerang Inc. is considering a new $4-$year project. It will require the purchase of a $$4\mathrm{.}0$ million machine with an additional $$100,000$ for shipping and $$200,000$ for installation. The machine will be depreciated straight$-$line to zero over its four$-$year economic life, after which it will have no salvage value. The project is expected to have sales of $100,000$ units per year at a price of $$20$ per unit. There will be fixed costs of $$20,000$ per year and variable cost per unit of $$6\mathrm{.}25$ per unit. The company$$s marginal tax rate is $35\%.$ Their cost of capital is $10$ percent.

$2.$ Accelerated depreciation and sale of a capital asset. Same as in problem $2$ except that the equipment will be depreciated as a MACRS $5-$year asset and can be sold at the end of $4$ years for $$450,000.$

$3.$ Dealing with growth. Same as the problem above except that the unit sales are expected to grow at a rate of $5\%$ per year. Costs and prices are subject to inflation of $3\%$ per year.

$4.$ Dealing with capacity limits$.$ Same as in problem $4$ except that production cannot exceed the machine capacity of $115,000$ units per year

$5.$ Dealing with working capital needs. Same as in problem $3$ except that the company will need working capital each year equal to $5\%$ of next year$$s sales.

And calculate NVP $,$ IRR and MIRR